Has Faith Been Lost in REO?

NOV 9, 2012 5:25pm ET

Many professionals are fleeing the REO industry, everyone from servicing shop executives, to specialty providers, to real estate agents. Companies have had a difficult time building and maintaining business models around such an unpredictable market. The key word “unpredictable” does not describe today’s REO inventory as much as it has in the past. “Unpredictable” now relates to mortgage companies and industry professionals asking themselves, “What am I gaining for my efforts?”

One of the holders of the largest volume of REO assets put several REO vendors through a rigorous RFP process earlier this year. The results were to be expected; they awarded the work to three vendors, all of which are minority- or woman-owned businesses. These groups added personnel and prepared their organizations to manage an influx of the country’s REO business, only to learn recently that Fannie Mae decided to shift all of this work in-house and let their REO vendors go. With this kind of unexpected event, what is the driving force to keep REO suppliers motivated?

Real estate agents continue to lose inventory in their pipelines, and at the same time inherit more tedious and stringent compliance guidelines. Agents incur the costs of managing compliance as well as higher liability, only to see their margins shrink. More agents are choosing to exit the REO industry, leaving fewer resources for REO sellers to work with; thereby, creating a ripple effect throughout the industry. Executives from servicing shops try to avoid promotion to their company’s REO operation, fearing they will be pigeonholed to downsize resources and establish relationships that may quickly end, unable to make improvements without jeopardizing their employment.

There is no doubt that these circumstances stem from the fatigue that accompanies the continuous scrutiny investors and servicers continue to receive from regulators. Regardless of default ratios throughout the country, there will always be a need at some level for REO professionals. Even in the best real estate markets and the best economy, we see REO inventory. The question that lingers today is: What can be done and who can get involved to balance compliance while maintaining the interest of those who make REO liquidation possible?